Getinge AB (publ) (GETIB) Earnings Call Transcript

Hi, everyone, and welcome to today's conference. This is Mattias Perjos, the CEO of Getinge. And with me today, I have our CFO, Agneta Palmer. So in today's conference, we'll go through our performance and some of the highlights from the second quarter before we open up for a Q&A. So we can move over to Page #2, please. And as usual, let's start by looking at the development of our strategic KPIs. We continue to clearly track in line with plan to increase the share of sales from recurring revenue, accelerating the share of sales from high-margin products like, for example, our ECLS offering, consumables and infection control and BetaBags in Sterile Transfer. This is all supported by solid and effective quality processes. And sales from recurring revenue continue to make up about two-thirds and the high-margin products are now at 70%. For quality, the number of field actions in relation to sales has decreased significantly, and we're pacing a lot better than last year. These improvements should, of course, be achieved through responsible leverage and also an attractive long-term return on invested capital. With that, we can move over to Page #3, please. So if we zoom in on the second quarter and some of the financial key takeaways for the quarter. Overall, we delivered a healthy financial performance in the quarter with solid top line growth. Net sales grew 4.6% organically and with positive development in most of the business areas. Order intake increased by 6.2% organically. Adjusted gross and EBITDA margins were up in the quarter as a result of the tariff refund and also continued positive underlying performance in our business. This led to a strong cash flow and a strong financial position with financial leverage at 1.7x, so well below the 2.5x EBITDA as we have as our internal threshold. We can then move over to Page #4 and some of the key events in the quarter. So we take a step back here and look at some of the key events in our business across the second quarter. When it comes to the offering and customers, we continue to be innovative. And in the quarter, we launched 3 products, which will benefit customers and patients. We have launched the Aquadis Endo 110, which is the next generation of automated endoscope reprocessing, while the Fluobeam LS expands the fluorescence imaging portfolio for small incision surgery. We also launched Vasoview Hemopro 3, which is the latest evolution of our EVH platform, supporting coronary artery bypass grafting procedures. And in Hamburg in Germany, we opened a digital OR innovation center with the purpose of accelerating the path to a more intelligent perioperative workflow. Furthermore, in Surgical Workflows, we strengthened our infection prevention offering in endoscopy by acquiring Pennamed, a U.K.-based distributor of endoscopic consumables. We, of course, also monitor the situation in the Middle East closely. Our first priority remains to tend to our employees in the region and continue to support our customers. The region makes up about 2% of sales, where Saudi Arabia is around half. And thanks to our team's diligent efforts to reroute shipments to implement sourcing initiatives and also take other mitigating actions, the impact on both top line and costs have been very limited so far. Naturally, this might become more of a headwind if the situation worsens, and we continue to follow this very closely. If we then move to sustainability and quality, we reached an important regulatory milestone in June when we submitted the 510(k) application to FDA for our Cardiosave intra-aortic balloon pump. I'm also happy to see that several of our sustainability KPIs are trending in the right direction. For example, when you look at the product quality KPI and the greenhouse gas emissions noted here on the slide. As briefly mentioned also, when it comes to our tariffs that we communicated separately, we did receive an IEEPA refund in the quarter of approximately $36 million. We can then move over to Page #5, and we'll discuss our top line performance. So when it comes to top lines, and then we start with order intake. The organic order intake in Acute Care Therapies increased primarily in ECLS therapy consumables in our covered stent portfolio and within EVH. When it comes to Life Science, the organic order intake rose sharply during the quarter following a double-digit growth in Sterile Transfer and in Bio-processing. This continued to decline as a result of the geopolitical uncertainty and the impact that this has on decision-making and the continued challenging investment climate for pharma. The organic order intake for Surgical Workflows increased slightly, driven by strong performance in Infection Control, while Digital Health Solutions and Surgical Workflow places noted a decline in the quarter. Then when it comes to net sales, we had 4.6% organic growth. Acute Care Therapies increased its net sales organically, primarily due to sales of stents, ECLS therapy consumables as well as Intra-aortic balloon pumps and consumables in the Cardiac Assist subsegment. In Life Science, organic net sales fell slightly despite robust growth in all product categories, except for WIS. And in Surgical Workflows, organic net sales increased following growth in Surgical Workplaces as well as service and consumables in Infection Control. So with that, we can move over to Page #6, please, and I hand over to you, Agneta.

Thank you, Mattias. Overall, in addition to the tariff refund, we improved our margins in the quarter, thanks to leverage on the increased sales and continued efforts with pricing, mix shift and productivity. If we look at adjusted gross profit for the group, adjusted gross profit amounted to SEK 4.645 billion in the quarter, primarily on the back of the tariff refund, increased sales and price adjustments. This led to an increase of the adjusted gross profit margin by plus 4.6 percentage points in total. On adjusted EBITDA, adjusted gross profit effect on the EBITDA margin was plus 4.8 (sic) [ 4.6 ] percentage points. Adjusted for currency, OpEx had a positive impact on the margin by about plus 1.1 percentage points in the quarter and FX impacted negatively by minus 0.4 percentage points. All in all, this resulted in an adjusted EBITA of SEK 1.478 billion and a margin of 17.6%. Let's move to Page #7, please. We remain in a solid financial position. Free cash flow in the quarter amounted to SEK 1 billion. Compared with last year, free cash flow was impacted by improved operating profit and changes in working capital. At the end of Q2, net debt increased to SEK 11.5 billion on the back of the final earn-out for Paragonix, the acquisition of Pennamed and the dividend. If we adjust for pension liabilities, net debt is at SEK 9 billion. This brings us to a leverage of 1.7x adjusted EBITDA, which is well below the 2.5x, which we have set as an internal threshold. If we adjust for pension liabilities, leverage is at 1.3x adjusted EBITDA. Cash amounted to approximately SEK 2.1 billion at the end of the quarter. So all in all, we can conclude that the financial position continues to be strong. Let's move to Page #8, please, and back to you, Mattias.

Okay. Great. Thank you very much, Agneta. And besides the tariff refund, Q2 was the first quarter in a while with a little bit cleaner year-on-year comparison as there were tariffs also in Q2 2025. And even if there was still a headwind from FX in this quarter, it has eased. Looking then at the rolling 12 months development for adjusted EBITA margin, we were at 12.7%, 2 years ago, and we're now at 15.2%. Normalized, which means that including -- excluding tariffs, we are at 15.5%. If we go back to the capital market update that we had in May 2024, we guided for an adjusted EBITA margin span of 16% to 19% by the end of 2028. We're about halfway to the end of 2021 -- 2028 from then, and we are closing in on this span. The main drivers which will support us there in spite of continued tariffs are the gradual cost release from the second half of this year, primarily stemming from the regulatory submission and the future approval processes when it comes to Cardiosave and also Cardiohelp II. There's also the mix shift to more recurring and high-margin revenue, and there is also the results of our continuous productivity measures and some of the key product launches that we have ahead of us. With that, we can move to Page #9, please. So in terms of the financial outlook for 2026, I think we're all aware of that we live in an uncertain time with a lot of geopolitical uncertainties that we need to navigate on a daily basis in our business. But based on the underlying demand that we see and our regular dialogue with customers, our expectation remains for an organic net sales growth to be in the range of 3% to 5% and this is adjusted for the phase-out of our surgical perfusion product category. Surgical perfusion is still expected to have some net sales in 2026, but declining from about SEK 250 million to around SEK 50 million. We can then move to Page #11, please. So just to summarize the quarter before we head into Q&A. Overall, we had a robust financial performance with solid organic growth in top line. Margins came in healthy, thanks to the tariff refund and also our improving underlying performance. Cash flow in the quarter and our financial position remains strong. For 2026, we reiterate our guidance for organic net sales growth of 3% to 5% adjusted for the phaseout of the surgical perfusion. Our priorities for 2026, they remain the same as they've been from the beginning of this year. We continue to have the #1 priority of addressing the remaining challenges in Acute Care Therapies. We have the sustainability productivity improvements that we're working on and the cost consciousness when it comes to navigating in this geopolitical uncertainty and also addressing the impact from tariffs. And #1 priority, of course, is also continue to creating added value for our customers, which I think is something that we see on an everyday basis in our business. So, with that, I open up for questions. Thank you very much.

[Operator Instructions] The next question comes from Erik Cassel from Danske Bank.

First, I wanted to ask about the composition of organic order growth, specifically for EMEA, obviously, very strong at 16%. And you're saying that mainly it seems to do with ventilator orders. But I also wanted to ask you, is there any component of Cardiosave return and early Cardiohelp II units that you're seeing now in order intake and also on the Polish, Italian ventilator tenders, were they sort of very significant and I guess, nonrecurring? Any color on both of those would be very helpful.

Right. Thanks, Erik. We don't disclose detailed numbers on product area level, but we do have some sales of both categories that you mentioned here and also a bit of an impact from sales in Poland, but I -- we don't disclose detailed numbers of this. So there's an impact. And -- but it's early days when it comes to both Cardiohelp II and also the shipments of Cardiosave.

Okay. And then I wanted to also ask about subsegment products as well, I guess. But on the order quality in Life Science, super strong as well, especially Americas. I just wanted to see if you can say anything about in part, what's happening with the market over there? And also if you can talk about the mix between Sterile Transfers versus bioprocessing split if there's anything nonrecurring in that order intake or if we're just seeing, say, the U.S. market on a new higher level?

Yes, I'd say there is nothing nonrecurring in there. It's -- it is sterile transfer continuing to trend very, very strongly as it has for a while. And also then in addition to this, we are seeing a bit of a better market climate when it comes to bioprocessing. And then on the negative side, as I mentioned in the call, we have a slightly more challenging situation when it comes to the WIS business and the capital goods there. There's still some decision anxiety when it comes to our pharma customers. So that is a drag on the business, but there's nothing unusual or one-off nature when it comes to the order intake otherwise.

Okay. Good. And just a quick one, is these types of orders, which I guess are mostly consumables, not the mix in Life Science, are they converting relatively fast? Or is this order intake for long term, so to say?

Sorry, which category were you talking about then?

Mainly sterile transfer, but overall consumables within Life Science.

I think there's some lumpiness when it comes to order patterns in consumables in Life Science. But again, there's nothing that stands out dramatically here, I'd say. And when it comes to the sales, it is a lot more smooth when it comes to deliveries. So nothing out of the ordinary, I would say, in the quarter as such.

The next question comes from Sten Gustafsson from ABG Sundal Collier.

More product detailed questions then. I was wondering if you could share with us sort of growth rate and demand for your ECMO and intra-aortic balloon pump products. I guess we all saw one of the competing products out there having some issues and weak sales momentum. So I was wondering if that has helped your products in the market?

Yes. Thanks, Sten. No, we have no evidence of that to us this -- I can't talk about the competitor positions here or anything that they've discussed in their earnings calls. But when it comes to our business, we basically continue to see the good trend that we've had for our ECLS business. And this is geographically, I say, very, very strong across the board also. And when it comes to the balloon pump business, we -- as you know, we started to release shipments for CE markets and kind of ramping up the deliveries here as well. But I don't see a big connection between what other companies have communicated here and our growth. For us, it seems like normal strong demand driven.

Great. And then my second question is, and this is more of a clarification. I think you mentioned in your remarks, cost releases in the second half related to the upcoming launches. I was wondering if you could perhaps quantify those.

Yes, we haven't put a number on this when it comes to the second half of this year. What we've said is really just reiterating what we've talked about for a few years now that all the costs that go into remediating the 2 remaining categories in Cardiopulmonary in Cardiac Assist will start to come down in the second half of this year. So the overall number I'm talking about here is the SEK 800 million of extraordinary quality costs that we said peaked in 2024. So we had a little bit of a lowering of these costs in 2025. We expect another lowering in 2026, mostly back-end loaded for '26 and then a little bit of a rapid decrease of cost in 2027 and '28.

The next question comes from Ludwig Germunder from Handelsbanken.

So first one, I just want to follow up on the IABP ramp-up in CE markets. Maybe you mentioned it, but would you say that there are any stocking effects in that at the moment since you're ramping up? Or would you say that the sales and orders are very true to the underlying demand?

We are still supply constrained. So there's no possibility for anyone to stock any of the balloon pumps that we have started to ship here. We really have just been able to meet the most critical and urgent customer demand.

Great. Secondly, I just wanted to focus a bit on ACT margins here. So could you help us understand and maybe elaborate a bit on the underlying margin development for ACT specifically if we adjust for tariff refunds how should we think about that?

Go ahead, Agneta.

Yes. No, So the majority of the tariff refund is related to ACT, but underlying margin performance is rather strong connected to those factors that Mattias also mentioned. It is a mix shift. It is the high-margin disposables that come through. It is continued pricing efforts, and it is those productivity initiatives. So underlying margin develop is strong, but it is boosted by this refund.

And then just a quick final one, if I may. So recently, there has been some discussions regarding U.S. hospital CapEx levels. I was just curious if you could share anything what you're currently seeing in the U.S. and if you have changed -- sorry, if you have noticed any change recently in the customer dialogues.

No, we have the same data as everybody else here. And I can only -- and we actually have seen this since almost a year back in some of the data from our customers as well. But we are very close to, I mean, strongly needed acute therapies. So we haven't had any real demand impact from our perspective. And I think, as I alluded to in the call, the continued dialogue that we have on an everyday basis with our customers is still rather positive and customers seems to be willing to invest in the type of products and therapies that we offer because it's something that is needed to treat patients on an everyday basis.

The next question comes from Kristofer Liljeberg from DNB Carnegie.

Two questions. First, could you just update us on the Cardiohelp II previous hopefully problem status? And also, I'm curious to hear your view here now about the potential to lift margin for the full year and also if we adjust for this tariff refund that you had and maybe somewhat more of that in the second half of the year?

When it comes to the Cardiohelp II, limited market release, this issue, as you mentioned, has been resolved. So we are back into the final phase of that. And then, of course, in the coming months, then move into like a full market release. So that issue is behind us. When it comes to the margin guidance, we don't give detailed guidance for 2026, but we have mentioned earlier that our ambition is to improve the reported margin also this year. we have not changed that at all, but we're not prepared to give any more detailed guidance now. When it comes to the tariffs, we have, of course, reported what has been refunded to us and also how this is reported in the financial numbers. And we'll continue to report forward-looking from here on what tariffs we end up paying. But I would underline that as of next week, there is a new tariff regime coming into place. We don't know exactly what this is. So we'll continue to update you once we have clarity on this. But our intention is only to continue to report tariffs paid going forward.