Getinge AB (publ)

Welcome to the Getinge Q4 report 2024. 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 five on their telephone keypad. Now I will hand the conference over to speakers, CEO Mattias Perius and CFO Agneta Palmeir. Please go ahead.

Thank you very much and welcome everyone today to today's earnings call. With me, I have our CFO, Agnetha Palmer. Today's conference will start by looking at the performance of Q4 and then do a bit of a recap of some of the key events of 2024. So we can move directly over to page number two, please. So the key takeaways when it comes to performance for the quarter, let's start with that. So looking back now at a strong quarter consistent through the three months, order intake grew by 11%, of which organic growth amounted to 7.4%, thanks to positive development in all regions and all business areas, except for life science, which was basically flat. Net sales increased by 11.8% in the quarter and there was 9.2% organic growth when it came to sales. If you look at the adjusted gross and the beta margins, they improved significantly in the quarter. This was mainly due to healthy price increases coming through. We had good leverage from the high volume. We had a positive product mix and also good traction from our productivity efforts. And when we talk about financial leverage, our financial position remains solid and even if the leverage has increased somewhat after the acquisition of Paragonix, it is trending down and our financial position remains solid thanks to the strong free cash flows that we generate. The proposed dividend amounts to 4.60 sec per share and this represents 38% of the free cash flow per share. We can move over to page number three, please. So this page is focused on some of the other key events in the quarter. Let's start with the sustainability and quality. On November 15th, the FDA published a letter to healthcare providers on its website, repeating the information about the voluntary medical device recall and supply concerns related to getting its VASOVU hemoproendoscopic vessel harvesting systems. and actions are being taken as agreed with FDA. So this is something that is ongoing. The progress has continued related to the previously communicated field actions for the CardioSafe balloon pump. And the update here is that all required technical solutions are now identified and in different stages of implementation. This means that we have a time plan for this and therefore we've also made a provision of 297 million SEK in the quarter to cover these activities that will span across 2005, 26 and partly into 2027. If we then shift the focus to offering and customers, when it comes to our offering, Paragonics Technologies was acquired in Q3 of 2024. They received a FDA 510 clearance for its innovative kidney vault portable renal perfusion system. This is a system that is designed to protect donor kidneys, which is the most in demand organ during transportation to transplantation. Currently, there are more than 100,000 patients on the national transplant waitlist in the US, and 86% of those patients are waiting for a kidney. So this is a very much needed product that we're happy to bring to market. When it comes to the last bullet, we have a bit more information on the surgical perfusion withdrawal and we'll come to that on the next page. So let's move directly to page number four, please. After the end of the quarter, we have initiated a process with the strategic intention of facing out the surgical perfusion product portfolio, which is part of cardiopulmonary inside acute care therapies. We're proud of our legacy and the products within this field, but unfortunately, we have been challenged gradually during the last 10 years, actually, with a steadily decreasing market share and eroding margins. The main benefit of this intended phase out is that we can reallocate the resources to areas of more profitable growth, and this is mainly within ECLS and in transplant care. From a financial perspective, the exit is expected to have a marginally positive adjusted EBITDA contribution from 2025 and onwards. This intention has been shared with relevant employee representation bodies and employees in line with local labour regulations and the necessary steps have been initiated already. The final decision on the restructuring is dependent on the outcome of negotiations with the employee representation bodies. Just to put surgical perfusion into perspective, we had net sales of about 450 million SEC in 2024. And depending on the outcome of the negotiations with the MP representation bodies, restructuring costs are estimated to approximately 800 million SEC in total, of which 522 million SEC was recognized in the fourth quarter of 2024. And this is reported as an item affecting comparability. it consists primarily of write downs meaning that it has a very limited impact on cash flow we can then move over to page number five please so if we look at the top line performance in the quarter overall we had strong performance positive development in all the regions when it comes to order intake we had 11 growth of which 7.4 was organic growth. Acute care therapists had double digit organic growth, coming mainly from ventilators in critical care, ECLS in cardiopulmonary, and from cardiac assist. Despite the strong orders within sterile transfer, life science was slightly down, mainly due to weak orders for high purity in New England within bioprocessing. Surgical workflows had growth in all product categories, so that's really positive. When it comes to net sales, we had 11.8% growth and 9.2% of this was organic growth. And also net sales, acute care therapists deliver double digit organic growth coming from the same categories as orders along with healthy growth for our EVH products within cardiac surgery. Looking at life science, they had a very busy quarter and managed to show an impressive effectiveness when it came to deliveries in the quarter. So the business area was up by almost 13%, mainly on the back of significant sales of sterilizers and the continuing strong recovery in sterile transfers. Certica workflows had a particularly good performance within digital health solutions and infection control, where also Healthmark that we acquired a little bit over a year ago is continuing to make a substantial contribution in line with our strategy to increase sales within consumables. So with that, we can move over to page number six and I hand over to you for a moment Agneta.

Thank you Mattias. So this quarter clearly shows the leverage that we get on margins when sales volumes go up. And we are also pleased to see that the focus that we have on structural measures to enhance productivity and cost efficiency are starting to pay off. For the group, adjusted gross profit increased by about 1 billion SEK to 5.6 billion SEK in the quarter, primarily on the back of healthy price increases, volume and favourable geographical and product mix. If we then look at the adjusted EBITDA, the adjusted growth profit had a positive effect on the margin by 3.8 percentage point, thanks to those factors that I just mentioned. We continue to see a positive trend on the OPEC side, which adjusted for currency had a 0.7 percentage point positive impact on the margin in the quarter, mainly related to operating leverage. FX had a positive impact on the margin as well. And all in all, this resulted in an adjusted EBITDA of 2,143,000,000 and a margin of 19.4%. Let's move to page seven please. The strong performance in Q4 comes through also in the free cash flow and leverage. Free cash flow increased by more than 70% and amounted to around 1.7 billion. Compared with last year, free cash flow was positively impacted by the improved underlying business performance. Anna-Lena Almqvist- Working capital increased, but to a lesser extent compared to last year, and if we look at working capital days they continue to be be well below 100 we are now at 89 days. At the end of Q4, net debt was 10.5 billion. If we adjust for pension liabilities, we are at 7.8 billion SEK. And this brings us to a leverage of 1.6 times adjusted EBITDA, which is well below the 2.5 times which we have as an internal threshold. If we adjust propension liabilities, the leverage is at 1.2 times adjusted EBTA. So this signals that we remain in a solid financial position even after the recent acquisitions that we have made. Cash amounted to approximately 3 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 eight and back to you, Mathias.

Okay, great. Thank you very much. And that concludes the summary of the quarter. Let's take a step back and zoom out to look at the full year of 2024. As you will know, it's been a an eventful year for us with a fair share of both challenges and some key achievements. And on this slide, you can see just a selection of some of the key events throughout the year. Let's move over to page number nine, please, and we dive into Paragonics technologies. So one of the highlights, of course, was the acquisition of Paragonics in 2024, a market leader within organ transport products and services. And if we take a closer look at the first quarter as part of the getting a family, we can move over to page number 10, please. So, Paragonix showed an impressive net sales growth of about 65% in the fourth quarter, contributing to sales with approximately 240 million SEK. With about 50% market share in heart and lung, respectively, and 10% in liver, Paragonix supported more transplant cases than all the advanced preservation companies in this segment combined in 2024, so it's a really impressively strong position. For 2025, we've set the bar high with an ambition of helping 10,000 transplant patients. And I want to take this opportunity again to welcome the Paragonics team on board and congratulate on the impressive performance so far. We can then move over to page 11, please. And one topic that we've discussed in all the calls this year is regarding, at least since May, is the follow-up on the FDA letter in May. So on May 8th last year, FDA sent a letter to healthcare providers advising them to transition from getting its CardioSafe imploding balloon pump, the CardioHelp system, and the HLS sets advanced to alternative products and continue using GetEngish products only if no other alternatives are available. So we thought it'd be prudent to give you an update on how this has progressed and to do that we move over to page number 12 please. So if we exclude service and look at hardware and consumables of these categories in the US, they made up about 7% of total getting sales in the rolling 12 months to May 2024, which was at the time of the letter. And just for reference, both ECLS is a category where the bulk of the revenue is from consumables and service. and in IABP it's also the majority but not as heavily weighted towards consumers as ECLS so since the FA letter in May what has been the impact on sales and to see that we move over to page 13 please And what we can see here is that the sales share has remained on a similar level, meaning growth in line with getting it over overall. So it's been much less dramatic impact than we mentioned were expected back in May. There's still uncertainty about the progress ahead. It's clear to me, though, that the impact so far is much, much less than we feared. And it is proof that the products are in demand and that we have a high customer loyalty. I think it's also worth repeating that we have the strong next generation of CardioSave and CardioHelp systems in the pipeline. We can then move over to page 14, please. In May, we also had our capital markets update where we shared our ambitions for 2024 to 2028. And we guided for an expected annual growth of 3% to 6%. landing at an expected adjusted EBITDA level of around 16 to 19 percent. As you can see on the left for 2024 we were a bit above the expected margin trajectory and we still stand by the margin ambition for 2028 and trend very well towards that. So overall tracking according to plan or even a little bit better. The main drivers behind this development is linked to both product remediation that is going according to plan, including the elevated quality cost that we still remain with and have remained with in the fourth quarter as well. On the mixed side, we see some normalization in biopharma and bioprocessing on the horizon. So there's some good continuing trend in line with what we reported in the previous quarter. There is positive traction in key product segments such as ECLS within transplant care and also in infection control consumables. We see that our R&D and innovation activities are going according to plan as well. And from a cost perspective, inflation is coming down on input materials. We will have to live with some elevated salary inflation for a while, but this is at least partly offset by some of the restructuring efforts that are kicking in that we can see the clear results of in Q4. And these measures will continue to contribute. And I also expect our price increases who have contributed strongly in 2024 to continue to have a positive effect. So with that, we can move over to page number 15, please. So this takes us to the outlook for 2025, where we expect organic net sales growth to be in the range of two to five percent based on the 2024 starting point or where we ended 2024. The outlook assumes sales contribution from the intended phase out of surgical perfusion business at about half of 2024 figures, which takes us to roughly 300 million SEC. In addition, we expect the reasons acquisitions to continue to contribute above this number. So with that, we can move to page number 17, please, and just summarize very quickly before we move to the Q&A. So we delivered a very strong performance in the fourth quarter of last year in terms of net sales, solid order intake and good margins in the quarter. All in all, very happy to report a record sales for the full year of 2024. Free cash flow was strong in the period and our financial positions remained solid. And this is why the board has decided to increase the dividend to 4.6 sec per share. When it comes to the outlook for 2025, we have decided to guide for an organic net sales growth of 2-5%. And when it comes to priorities, you will recognize most of them here. We continue to address the remaining challenges when it comes to quality and acute care therapies. We continue to work with sustainable productivity improvement and cost consciousness across the company. And most importantly, we continue to create adding value for our customers. So with that, thanks for your attendance. And we move over to Q&A, please.

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 Rickard Anderkrans from Handelsbanken. Please go ahead.

Good morning and thank you for taking my questions. So first a little bit on the margin outlook for 2025. I appreciate the follow-up from the May capital markets update but you know an impressive 100 basis point year-over-year margin improvement to 14% for the full year. So how should we think about the margin uplift potential for 2025 where you stand today?

Yeah, thanks, Rickard. We've decided not to give any more granular yearly guidance when it comes to margins. We stand by the span that we gave from the Capital Markets Day, and I just want to reiterate that we are clearly ahead of this now, tracking very well. So we expect continued improvements in the years to come, but we've decided not to break this down into each year.

Okay, but a continued improvement then for 2025 is reasonable as we stand today then?

Yes, I think so.

Okay. And it seems like you have good momentum on both orders and revenues in ECMO and in the quarter and for the year here. So how should we think about any impact or boost from sort of back order deliveries here in the quarter and how do you feel about the outlook for 25 and some assumptions around competitive impact we have seen increased competition in the US ECMO field for example so it's just interesting to hear a little bit on how you feel about the sustainability and in the momentum you saw in q4 if there's anything extraordinary to call out thank you

Yeah, I think there is some impact in the fourth quarter from delivering primarily some of the balloon pump backlog that we've had for a while. But there's also a strong underlying demand, especially for ECLS when we talk about the challenged categories. You're right that there's been some new competition in the CLS arena, so we're monitoring this closely. We can see that they're making some headway, but at the same time, we're still able to grow our business. So it kind of confirms our hypothesis that this is a nicely growing space where there is both customer loyalty to our products but also room for for new entrants clearly so very difficult to predict how this will pan out during 25 and the coming years but it's something that we're happy to see the loyalty from our customers and we're just continuing to monitoring the impact from competitors all right perfect i'll stop there and get back into queue thanks for taking my questions thank you

The next question comes from Erik Kassel from Danske Bank. Please go ahead.

Hi, good morning everyone. First question, the sort of strength in life science relates to high deliveries of sterilizers. I believe that's to a specific customer. So how non-recurring are those kinds of revenues? And if you do actually see them as somewhat non-recurring, What's the contribution from that on the beta level, sort of to split that out from the rest of the business?

yeah thanks we we don't see it as non-recurring we see this business as a bit lumpy when it comes to order cycles and delivery patterns given that the delivery times are often between 12 and 18 months so and it's not you're right we have some significant customers in here but it's not dependent on one customer i want to make that very clear so i don't think it's possible to uh isolate that and think of that as something separate. I mean, if you look at the overall sterilizer business year over year, we have many customers in this field. And as I said, business patterns tend to be lumpy, but we do expect to continue to see growth in these categories over the planning period. All right, perfect. Thank you.

And then next question, sort of a follow-up or a repetition of the previous ICMA questions. But you're not really specifying ECMO or balloon pump consumables in dimensions of strong order intake, I believe. I mean, is that just wording or are you actually now already seeing order intake of hardware in those businesses that's doing fairly well?

I mean, we continue to have order intake absolutely in those categories. It's not the same growth as it would have been without these restrictions when it comes to the FDA letters and the impact from competitors. And when it comes to do especially balloon pumps, I want to remind you that we have decided together with FDA that we do replacement business only. So clearly new customers, new pumps will go to somebody else. That's not a part of the market to work. competing for. So that is a headwind when it comes to orders. But overall, I think the categories, as we described on one of the slides here, have grown in line with getting an overall despite these headwinds.

All right, perfect. That's good to hear. Just to ask questions, there's lots of mentions of price adjustments driving results this quarter. Could you give any color on what's the sort of magnitude of impact now in Q4 and how you see that look for pricing into 2025?

Yeah, sure. I think our sales team have done an incredible job here during the whole year, actually, and a strong finish. So it's around 3% for both Q4 and the whole year.

And maybe just something you can repeat. Just important to mention that on the pricing side, we do have really good traction, but it is getting increasingly difficult in the market to increase prices, just to make sure that we mention that as well.

Okay, so what are you seeing for 2025?

We continue to see price increases, but it's likely to be a little bit below the level that we've had in 2024, but no more detailed guidance than that.

All right, perfect. I'll jump back to you. Thank you.

Thank you.

The next question comes from Aisha Noor from MS. Please go ahead.

Hi, good morning. Thanks for taking my question. My first one is on Paragonics. Are you able to disclose roughly the profitability of this business in the fourth quarter? I think you mentioned in the third quarter that it just turned profitable. Just trying to assess how we should be thinking about the margin for this business and the contribution in 2025 in our forecasts. Second question is on China, I guess life sciences and I guess overall.

what was the decline in q4 and could you give some outlook for china in 2025 including any potential stimulus benefits thank you yeah thanks when it comes to paragonics we we don't disclose disclose detailed numbers on on like product area level but as you mentioned yourself they did turn profitable already around the end of the third quarter and have continued to improve profitability still diluted to the group and to ACT. But we can see that there is leverage as they continue to grow. So that's, I think, the best guidance I can give on that. And when it comes to China, we actually did have some small growth towards the end of the year. signs of improvement there as well, and we don't disclose 2025 growth ambitions here on kind of country level.

Okay, if I can ask a follow-up on the surgical perfusion business phase out. So my understanding was that the competence in the perfusion segment would complement the paragonics business, and I think before in the past you said that these profusion service models could strengthen your organ transplant portfolio. So what's changed your mind? And when you say you're going to refocus some of that investment into ECLS and transplant care, what kind of products or segments are you looking to enhance? Thank you.

Yeah, we've not changed our mind at all. I think that's a misunderstanding if that's the case. So the rationale behind withdrawing from surgical perfusion is the low market share that we continue to have really in the wake of the consent decree 10 years ago, where we had to abandon the US market for surgical perfusion. So it's been a struggling category since then. So small market share, it's a loss making category for us as well. So we don't feel that we're good owners of this anymore. And the effect of withdrawing from this segment is that we actually free up competency and resources for transplant care and for ECMO. So that's the rationale.

Okay, thank you.

Thank you.

The next question comes from Mattias Wadsten from SCB. Please go ahead.

Yes, hi, thanks for taking my questions. First one, I think you flag ventilators as the key driver in orders and sales in SCT here in Q4. So if you could give some further flavor to the development for vent isolated. And I'm also interpreting this as If we look at ventilators from a sales perspective, many start to grow here actually in Q4. So do you see sort of elevated growth rates in the coming quarters here? And could you give any sort of estimation on ventilator growth rates here for 25 and maybe up until 28? That's the first one.

Yeah, all right. Thanks. I mean, your assumption is correct. We've seen very good momentum for ventilators now since the half year mark. Roughly, we can see both strong water intake and it's starting to translate into better and better sales as well. So we're clearly now seeing some of the benefits of competitors withdrawing from this market. But in line with the other parameters, we don't give detailed order intake or revenue numbers per category, but it's strong double-digit growth right now for that part of the business.

That's very helpful. And then on statistical workflows, I think Q4 now follow up with Q3 where the underlying margin started to take off in CERC workflow it seems without health mark. So I guess we have reasons to believe that this will continue in coming quarters as well. And I think just sort of 9% margin here now for the full year. So yeah, would you say the 10% level is relevant for 25 or how should we look at CERC workflows? What is the main, the key part of the improvement there?

It's a number of things. I mean, the physical workflows has a good track record of working with productivity since long before the pandemic, actually. And as you Sorry, I have some side disturbance here. Yeah, Noceutical Workforce have worked in a structured way with productivity since long before the pandemic and we've been able to see through I think some of the progress for this whole time period as well. So they work with all the levers when it comes to moving to better margin categories. So we have some mixed rotation within the business area. there is productivity efforts they've suffered a lot from inflation the last couple of years but we can see now that some of the inflation mitigation effects are delivering results as well we do also now have better price traction in surgical workflows so that's also meaningful for help so We don't give BA or group guidance on EBITDA margin in the individual years, like I said earlier, but we stand by the ambition that we communicated some years ago that we should be able to do 10% EBITDA in surgical workflows, excluding the impact of health mark. And we're not there yet, but we've made some good steps in that direction.

Thanks. One last point for me, maybe. If there are any phasing effects worth mentioning, what struck me was that you mentioned EVH was strong in, and the scope of vessel harvesting was strong in Q4. Is that something worth mentioning, some phasing dynamics in the business?

No, nothing to call out, nothing in particular. There's been a little bit stop and start during the second half of the year, but I think we intra-quarter, this should not be a material impact.

Thank you very much.

Thank you.

The next question comes from Christopher Lilleberg from Carnegie Investment Bank. Please go ahead.

Thank you. Two questions. First, you mentioned this negative impact from the face-up of the perfusion. Just to make sure, did you say that the negative impact would be 300 million or is that the sales you will still have in 2025?

It's the sales we will still have in 2025.

Okay, great. Thank you for that. And then I wonder about, is it possible to quantify, as you have done before, the cost or the impact from the quality issues and earnings in 2024 where it ended?

No, it's difficult to do any granular breakdown of this. We ended up well above the 500 million SEC that we had indicated before due to some of the efforts that we needed to do within EVH and all the three categories I would say in ACT. When we look at the impact of this and go back to when we started to talk about the impact in Q2 of 2022, it has been a mix of EBITDA impact from lost revenue, there's been scrapping costs, there's been under absorption in there. There's been a cost for uplift of the portfolio. There's been complaint handling costs in there as well. There's so many different moving parts in here. So I think the best assumption one can make now is that we saw a peak of the quality related costs in 2024. We should be trending down from here, but it's difficult to give any more granular guidance on that level, I think.

So you said peak in 2024, so that means it was more than 800 million, which I think you said for 2023.

That's correct, yes.

Okay. And what was the reason for doing this, taking the cost for future field corrections now in the fourth quarter? we do that quite often when it comes to previously that's cost that you have had every quarter right

Yes and no. When it comes to some of the field actions that are more significant, we do make accruals for them. Sometimes they're not material enough that we communicate them, but this one is. And the reason for doing this now is that last time we reported, we did not have visibility on the technical solutions for the balloon pump. Now I think we have been able to work through that. We've made cost assessments of this. We have a time plan for it as well. And then we do make an accrual. That's our... Accounting works for us.

And the plan is still to file for new approval mid 2025?

Yes, correct.

Okay, thank you very much.

Both 510k in the US and the reinstatement of the CE mark is our ambition.

The next question comes from Patrick Ling at D&B Markets. Please go ahead.

Yes, good morning. Hi, guys. Two questions, if I may. First of all, you mentioned that the surgical perfusion business is loss-making. Is it possible for you to quantify approximately how much? And then the second question is, when you're talking about the phase-out, Is that basically that you're just closing it down, or do you actually intend to sell the operation? Thank you.

Yeah, thanks. It's a loss-making business, as you say. We don't disclose the magnitude of this. We've only said the other side effect of this, that there would be a positive EBITDA margin impact from 2025 and onwards from removing this business. we've we made the the accruals that you can see in the report we we will try to sell some of the assets belonging to this business but we've not factored that in right now but we do believe that there is a value in here as well but we will need to come back on that when we see what uh what becomes of this so so how should i think about it i mean if if sales comes down and you will remain with around 300 million in sales uh will the and i mean

volumes go down, which normally impacts your gross margins, et cetera, et cetera. So will the margin improvement that you expect in 2025, will that be primarily due to you reallocating operating expenses to other areas? Or how should I see it?

I can let Agneta speak if there's any more granular way of looking at this, but I think the best way of looking at it is just a part of a percentage point improvement in EBITDA margin for the group.

Absolutely, and I think it's important to mention that this is a gradual phase out, as Mattias mentioned before. remain with some sales for 2025 also for 2026 and then but gradually moving out of this this segment and it is like you say financially net positive this case on a on a standalone basis that is what we what we will disclose it will gradually marginally contribute slightly to to the improved margins ahead

Okay, great. Thank you, guys.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. And 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. Thanks for joining the conference today. I mean, there's no additional summary here. I think we made that already ahead of the Q&A. So just thanks for your attention and have a good rest of the day.